Question
CASE 2. The current price of a stock is $77, the sigma is 0.20 and the continuously-compounded risk-free rate is 4%. The stock does not
CASE 2.
The current price of a stock is $77, the sigma is 0.20 and the continuously-compounded risk-free rate is 4%. The stock does not pay any dividends. We want to price a call and a put option with strike of 75 and three months to maturity on this stock.
Using a one-step binomial tree method, the prices of call and put options are determined by
C = c * S0 + Bc, and
P = p * S0 + Bp, respectively.
Express your numerical answers in four decimal places.
The value of u is ____.
The value of d is ____.
The value of uS0 is ____.
The value of dS0 is ____.
The value of Cu is ____.
The value of Cd is ____.
The value of c is ____.
The value of Bc is ____.
The price of a call option C, as determined by the Replicating Portfolio Method is ____.
The value of Pu is ____.
The value of Pd is ____.
The value of p is ____.
The value of Bp is ____.
The probability P* for the call option is ____.
The probability P* for the put option is ____.
The price of a put option P, as determined by the Risk-Neutral Probability Method, is ____.
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Money, Banking And Financial Markets
Authors: Stephen G. Cecchetti, Kermit L. Schoenholtz
3rd Global Edition
1259071197, 9781259071195
